How Patent Monopolies Work In Reality, Outside Of Fairytale Land

There is a fairytale about how a poor, lone inventor can come up with something fantastic, file a patent monopoly on it, and get insanely rich through that patent monopoly. Like all fairytales, it’s a beautiful story, but still a fairytale. Outside of children’s books, the patent monopoly system makes sure that no disruptive inventors or inventions can threaten the current giants in the slightest. Here’s how it works in reality.

Let’s assume you’ve invented a new and amazing wrench. It’s going to save a lot of hard labor through a new mechanical leverage, translating into real profits. Usually, to get this idea, you’ve gone through school and studied a lot of mechanical knowledge that was discovered before your time, but still, let’s go with the myth of the completely independent and alone inventor here. So you’re a lonely poor genius inventor, working in a poorly-ventilated dark basement (perhaps contributing to creative thought through its lack of oxygen but enrichment of other exciting chemicals).

So you want a patent, or patent monopoly, on this wrench. (Patents are usually referred to as exclusive rights. To put this lawyerspeak in a more graspable language, exclusive rights are a monopoly in everyday speak, and this is the term I’ll use.)

The first shock comes at the price of the lottery ticket. To just apply for a patent monopoly in Europe, the typical cost is 50,000 euros. Did you have that stashed away in your basement? If so, why are you calling yourself poor, and why were you living in a basement in the first place? This is the first barrier to make sure that only the current rich corporations can afford patent monopolies and use them against cash-strapped upstarts.

But let’s assume that you magically have 50,000 euros that you can spend on this, and get to take part in the patent monopoly lottery. Let’s even assume that the patent monopoly is approved and granted (which is quite a bit like the odds on winning on a lottery ticket, and just as scientifically predictable).

What happens then?

Nothing. Nothing much.

Except some huge SinghCorp in Bengali may all of a sudden start manufacturing your wrench in large volumes. Not that they’re paying you anything. Or even telling you about it. You’re going to need to find out what’s going on in an obscure market on another continent all through your own efforts.

So assuming you magically discover that this is going on, you contact SinghCorp and demand royalty payments and damages, only to get laughed at in the face. “And what do you plan to do about that?”, they respond.

This is where the next shock sets in as to how rigged the system is in favor of the big corporations and current kings of the hill, rigged against competitive inventions and inventors. Your only recourse is to sue SinghCorp for damages in a court of law. You may win, you may lose; it’s a flip of a coin in your favor, at best. This is where you realize that a patent monopoly lawsuit costs four million dollars on average for both parties.

And you are a poor lonesome genius working with a flashlight in a basement.

So let’s assume you get so far into fairytale land that you somehow can afford to sue SinghCorp for infringing on your patent monopoly for this wrench, that you come up with four million US dollars. (Do you still think “the poor genius inventor” sounds plausible here?)

The instant you file a lawsuit, SinghCorp will retaliate with suing you for five or ten patent monopolies from their portfolio, saying that your patent infringes on theirs. It doesn’t even have to be true – you have to prove it not to be true in a court of law. That means you are now finding yourself in the position of defending in patent monopoly lawsuits – five or ten of them – each costing, on average, four million US dollars.

Do you still believe this is something that protects the poor lonely inventor?

If you’re lucky, really lucky, you will just lose the patent monopoly on your wrench and ten years of your life that were drenched in bureaucracy, lawyers, and red tape.

Patent monopolies prevent innovation. It is a system that works against innovations, to protect the current corporations against competition from aggressive, innovative, and competitive upstarts. It allows the big corporations to crush competitive upstarts in the courtroom, rather than having to compete with their products and services.

As a last line of defense for the patent monopoly system, some people will claim that venture capitalists don’t invest in companies that don’t have a set of patent monopolies. Those who claim that use a common political process known as “lying through their teeth”, and usually have a strong vested interest in the system as such: you typically hear it from representatives of US embassies or patent lawyer trade groups.

The venture capitalists themselves, however, hate the patent system as a whole with all their guts and call it a cancer in the economy and say things like “I can’t understand why our government allows this shit to go on”.

It’s more than time to abolish this guild-era abomination and start promoting innovation again.

Rick Falkvinge

Rick is the founder of the first Pirate Party and a low-altitude motorcycle pilot. He works as Head of Privacy at the no-log VPN provider Private Internet Access; with his other 40 hours, he's developing an enterprise grade bitcoin wallet and HR system for activism.

It should be noted that 50.000€ is the raw price of a patent if you do nearly everything alone. If you need a patent attorney (and you need it), including several revision of your patent during its lifetime, you cannot count on less than 80.000€/patent. At least, that’s what I was told when working with patents.

PiratGurra

March 12, 2012

In Sweden, a representative of the PRV told me that 500k sek can be a typical cost for applying for a patent. Quite alot if you’re the typical “lone genius inventor” living in a basement alright.

I really loved this part:

“The first shock comes at the price of the lottery ticket. To just apply for a patent monopoly in Europe, the typical cost is 50,000 euros. Did you have that stashed away in your basement? If so, why are you calling yourself poor, and why were you living in a basement in the first place? This is the first barrier to make sure that only the current rich corporations can afford patent monopolies and use them against cash-strapped upstarts.”

hmm..
The article you refer to is 8 years old.. and clearly state
“This is likely to cut the costs of registering a patent, enforceable throughout the EU, by half – to around euro 25,000”
Witch makes your claim a bit strange… The article claims it will cut the current (2003) costs in half 😉

Even in a fairytale this would be an example of a bad patent, because a wrench is generally a mass-market item that a skilled person could reverse-engineer. The point of a patent is to provide a limited monopoly in exchange for the public disclosure of a useful invention. But disclosure via patent is useless in this case, because the invention is disclosed by selling it.

If the invention were a novel process for producing a wrench, the idea of granting a monopoly might be more palatable—it might persuade the inventor to disclose a manufacturing technique they would have otherwise kept secret. Given the ridiculous costs you posted, it’s not clear to me that the patent system is salvageable, although limiting patents to things that can’t be reverse-engineered could reduce these costs.

Scary Devil Monastery

March 14, 2012

…although limiting patents to things that can’t be reverse-engineered could reduce these costs.”

I’m not quite sure what type of invention that would be. If the invention cannot be reverse engineered then there is also no need for a patent unless the master data is somehow stolen. Rick’s example is pretty good actually. Patent law, as is, does allow for obvious engineering to be patented.

Case in point, Apple successfully managed to get Samsung’s Galaxy Tab surfpad pulled from German markets. Not because of innovative infringements but because, in essence, the galaxy tab was a rectangular communications device with aluminium reinforcement and a centered glass screen.

What this illustrates is that as long as you have the money to mount a case in court, you do stand a good chance of patenting even obvious design limitations. A wrench, in order not to infringe on another wrench, were it invented today, would have to look so different as to be almost unrecognizable. Which would usually mean that it would suffer in practical application as a result.

I personally believe both society as a whole and inventors lose out massively on patent law. Rick only tentatively mentioned what I perceive as the biggest stumbling block – merely in order to invent something you need a careful investigation by an entire legal team skilled in patent law or risk a massive lawsuit levied against you which you are more or less guaranteed to lose. Or at best, drag home a pyrrhic victory in.

☄

March 15, 2012

“I’m not quite sure what type of invention that would be. If the invention cannot be reverse engineered then there is also no need for a patent unless the master data is somehow stolen”

People had access to metallic aluminum for decades before this process was invented, and couldn’t “reverse-engineer” the process by looking at it. (Although, given that it was invented independently by two people in the same year, maybe I’m not giving a great example either.)

The inventor of such a process (or machine) doesn’t necessarily have the resources to meet the world’s manufacturing needs, or the desire to expand outside their core business. Without a monopoly, they might just keep it a trade secret, and they’d be wary of expansion because it would require more people to have access to the secret.

So in some cases, if the public frees an inventor from the burden of secrecy but lets them collect license fees for a while, it might be a reasonable tradeoff for both sides. (And the inventor can benefit from other people’s improvements to their process, e.g. via reduced costs, even after the patent expires.)

The above is a fairytale, of course; current patent systems hardly even pretend to weigh these costs and benefits. (As has been pointed out, it’s unlikely anybody has ever learned anything useful by reading a software patent.)

Scary Devil Monastery

March 15, 2012

I wasn’t aware of the Hall process. Certainly looks intriguing as a case study. Along with the development of Omeprazol by Astra Zeneca this does look like a process where patent of the process and substance might be justified.

The main issue being that it’s difficult or nearly impossible to actually create a patent law which covers processes such as these while at the same time not allowing rampaging patent trolling.

I’m thinking making patent applications far more stringent might work. If you’ve already sunk several years and many millions of dollars into actual development, having to defend your application in front of an expert panel with the explicit job of being highly critical towards issuing a patent ought to be a no-brainer.

Similarly, using an existing patent as a platform to launch another patent, derivative of the first should be explicitly forbidden.

Otherwise we end up with the current system where a single patent may deadlock entire industries from innovation in specific fields.

Nice article and I like the counterpoint that it enables disclosure. Not that this changes anything of the reality but it does show that patents could enable progress not slow it.

Thing is whatever you do the rich (corporations) get richer and the poor get the pain.

So funny how many responses are about the wrench, what a hang up!! I am surprised they don’t ask for a picture of it! The wrench is irrelevant, it is illustrative. Perhaps you should have used the more generic term “widget”

I am such an inventor, though not in a basement. I can only consider difficult to reverse engineer projects and can not nor would not touch patents with a very long barge pole.

while I’m here, may I say, the goal should be sustainable development, not more stupid short term only slightly better gadgets soon for landfill. iPad? What does it really offer? Just a new way of showing off.

Oh and as I am a pedant – PiratGurra – there is no such word as “alot”. You mean “a lot” (there is of course allot but that is a verb).

I’ve always felt the patent system was rigged against small shops, just as the author indicated. It is obviously not working as intended. The question I’ve never been able to answer is: how do we protect small shops?

Right now, as flawed as the patent system is, if you get VC behind you, get the patent, and bring it to market, you are somewhat protected. While it is true that it is difficult to sue someone without being sued back, the ironic beauty of it is that it will rarely come to that because most companies will cross-license each other’s patents and come up with mutually beneficial plans. This is all a really crappy way to do business and absolutely a non-ideal system, but it’s a system.

Without any patent protection at all, the hypothetical wrench/widget/whatever can be manufactured by anybody and there is not even a really expensive unaffordable law suit to stand in the way.

What’s the solution? I have no idea. I know the patent system is awful. I know it stiffles innovation. But I still fear that without it, huge corporations will still win. What do we do to stimulate small business sector growth and reward innovation, but still prevent abuse from established large corporations and cheap low-quality knock-offs?

Mr anti

March 14, 2012

Get rid of them.

The laws for stealing will replace most of these issues, as in theft of intellectual property rights. Fines, punishment and compensation thus replace patent settlements.

This means ideas arrived at independently can coexist. This is necessary far simpler solution than patents.

Leaving the problem of reverse engineering.

Complex ideas will either be impossible to copy or yield poor copies which will not replace the originals but will share the market. eg Apple vs similar Chinese products.

I think simple ideas like the hula hoop, cats eye and ipad glass/Al body if necessary will be invented fairly soon by somebody and so initial inventors rewards will rightly be only those before copies appear. They should not be restricted as this slows progress.

As for non-disclosure of complex practices, for the right fee such things will be shared.

Simpler, cheaper and fairer?

This article only labels a myth but perhaps here is a solution. And our poor inventor must invent something hard to copy or cash in quick. Otherwise, to fix it to one person for a long time is to overate it and overprice it.

At least now he/she has a chance

TM

March 14, 2012

I don’t think that quite works. First, you can’t get rid of patents (the sytem by which we treat inventions as intellectual property) and then claim there is theft of intellectual property. If there is no patent, there is no “property”, hence there is no theft.

Second, simple and quickly reverse-engineered doesn’t mean cheap or easily scaled to high volumes of production. You can only cash in quick if you have a lot of cash already. If you don’t, then you have to start production on a small scale, and a large company can easily swamp your offering in the marketplace well before you get large enough to compete.

Third, not much is really that hard to copy, not for big companies with deep pockets, and often (I’d guess usually) “hard to copy” inventions are those that cost a very large amount to invent in the first place, which means this again only protects the already-large. The reasons copies of Apple products are inferior are 1) Apple themselves has deep pockets to stay ahead of those copying them; and 2) Apple has patents that protect those products, so only the cheap, fly-by-night Chinese companies and the like are trying to do a straight copy, everyone else has to do something of their own rather than a simple copy of Apple’s gadget.

Scary Devil Monastery

March 15, 2012

I believe that proposed cure is worse than the disease. Intellectual “property” brings a can of worms to the table far worse than the one we intend to toss out.

Really, the only parts of IP which can be considered “enforceable” are “paternity right” and “Trademark”. You could make a case for clearly commercial copyright as well, although for the most part that would fall under the header of trademark theft.

Generally speaking, today most patents cover electronics. But in that sector, if you come up with a novel idea and implement it you still have to reinvent a newer and better application of it every two years. Meaning that the only real use a patent sees on electronics is by restricting innovation for ANYONE but the patent holder while said patent holder keeps building on old successes. Meaning it’s also highly risky to migrate to another platform or even experiment with one. Stifling innovation? More like stopping it dead in it’s tracks. All you get is more finely-tuned engineering on an already strip-mined intellectual substrate.

Which in turn leads to the mess of cross-licensing because otherwise no one would be able to even design an electronic calculator today. Cross-licensing, by the way, effectively blocks every entrepreneur without a multi-million dollar wallet from participating – so it’s a given that patents already block any small entrepreneur from taking his inventions to market there.

Lately, even the cross-licensing has started falling apart. There used to be a gentleman’s agreement regarding patents which, when upheld, allowed for holders of cross-licensing to compete on the market. In this way at least major manufacturers of mobile phones and portable communications devices were able to compete. Not so anymore. All you have to do is look at the free-for-all patent brawl which is involving anyone who even dares produce, for instance, a smartphone these days.

Patents completely fail to adress the electronics business. Really, after building and inventing a platform any company would still have a six month to a year’s head start on the competition as the only people with technical expertise in that platform are employed within the company.

After that time it doesn’t matter – the technology is for all intents and purposes already obsolete. I don’t believe the electronics business needs any form of patenting whatsoever to stay in competition.

Patents also fail to adress the real issue – that a patented market can not be “free” – it becomes more akin to a planned economy with a set few monopolies ruling the field. The market has learned to some degree to work around patents, not with it.

If someone comes up with a great idea then what should be held to is that s/he retains the paternity right – the right to be acknowledged forevermore as the inventor. After that, the best entrepreneur should win on the market. If that entrepreneur is the inventor himself or a company smart enough to hire him on the spot doesn’t matter.

What matters is that no idea, no matter how great, should let you sit back and relax while the royalties come rolling in for the next few decades. That great idea should instead be the item on your curriculum vitae which allows you to set your own terms in future employment.

Anony Mole

March 14, 2012

The core issue this article exposes is that the “good of society” and the “good of the corporation” are completely conflicting. Rarely do the two coincide as to intent and direction. The sociopathic tendencies of corporations, that is, the goal of profit above all else, flies directly in the face of societal welfare. If a thing benefits society but costs a corporation profit that thing will be quashed, buried or vilified in the attempt to sway public officials that the thing, in fact, does not benefit society. The control of patents and copyrights produces profit for corporations. Limiting or eliminating this control is the only way to return the power of ideas back to the people who create them. One way is to limit the time a copyright or patent can be held in monopoly. Another is to limit what can actually be patented, for instance, a minimum of at least three novel and unique claims must comprise a patent. Lastly, to revoke the status of corporations “as people” and then to enforce the law that says patents and copyrights can only be held by natural persons.

As long as corporations control government we will never see patent and copyright law reformed.

:P

March 14, 2012

That’s why I warez 😉

Justin

March 15, 2012

Love your articles! It’s unfortunate that it costs so much to file a patent in Europe! A local entrepreneur in my area says the patent she filed cost only 2000$ CAD. Which is still a sizeable sum, but not prohibitive.

I do, however, agree about the legal costs, however.

Scott A. Tovey

March 15, 2012

Hi Rick,

Nice article, I know a preacher who needs to read articles like this.

Back in 2005 when I was homeless, trying to start a ministry and getting absolutely no where in the process, an Associate Pastor casually stated:
“You need a patent to support your ministry.”

The first thought that crossed my mind was: “where does a homeless, unemployed man that can’t find work get $20,000(the filing fee at the time) to file for a US Patent?”
And yes, he did know I was homeless when he made that statement.

[…] How Patent Monopolies Work In Reality, Outside Of Fairytale Land (Rick Falkvinge) […]

sennah

March 17, 2012

There is problems posting comments on this side

rutros

March 21, 2012

Since Paris convention 1883 the purpose of the patent system was never to support individual inventors, but to protect investors (first to file)and open for free trade. The further development is done under WTO with Trips, Doha and other agreements

US had a another system, were the invention belongs to the inventor. However since last year even USA changed the rules to first to file. Thus the patent belongs to the applicant not the inventor. I guess that 90- 98% of all patents are owned by corporations

What Ricks is doing is creating a “straw man argument (halmdocka)

“the 50,000 euro estimate was an estimate from the European Commission about the cost of applying for a European patent. You can find it referenced here, among other places:”

Patent cost is around 5- 10 000$ for each country depending on how much legal advice that is needed. I have personal experience of this from US as well as Europe and Justin above from Canada also pointed this out.

The problem, which Rick is hiding is that there are about 30 countries in Europe (Rick did not define Europe.) In the EU there are negotiations going on to reduce this competitive disadvantage compared to US and China. In practice of course the applicants don’t ask for patent in Luxemburg and less important countries in order to reduce cost.

The problem is that Rick has no idea how the venture market works or even how the funding process goes on inside a industrial company

I doubt that Rick is creative enough to come up with an revolutionary original hardware idea, but if he does he should meet the questions from the investors and get a more realistic experience on what is needed before he gets the money for the development.

After all the inventor of the Xerox’s machine have to look for investors for 8 years before he could start the development. Those 8 years was a big loss for the society and without patent maybe the society had to wait for another 20 yearshttp://inventors.about.com/od/xyzsta…ns/a/xerox.htm

Is his story a fairy tale too?

That said there is no need for software and idea patents.

BigALL

April 2, 2012

I think patent monopolies do meet their objective of encouraging invention (as well as innovation) and public disclosure, to enable others to build on the stock of public knowledge once the (limited) monopoly expires. It is true that obtaining patents in all important markets is expensive, as is getting the invention mass produced and distributed in the market. Sole inventors usually have to give a piece of the ownership away to financiers to get there. Enforcing the monopoly through the court system is likewise (very) expensive. Hence it’s a field populated predominantly by wealthy corporations. Pharmaceuticals and electronics are the leading players.

Without the patent system we wouldn’t have new, effective pharmaceuticals. As some of the later postings point out, without patents you wouldn’t have IP rights, so even the large corporations wouldn’t risk investing in research (around US$150million+ to get a new idea from the drawing board into the market, with all the failed lines of research and regulatory approvals along the way) if anyone could simply copy the invention and sell it for much less, because they hadn’t incurred all that research cost.

Of course it’s true that wealthy corporations can sue anyone they claim to be infringing their patents, and they have the funds to outlast any inventors who sue them. I don’t think abolishing the patent system will stop the wealthy ones suing the upstarts – they’ll just find some other cause of action to invoke. But abolition would remove a significant incentive to invent and innovate and limit what might be marketed to things that cannot be reverse engineered. Yet why would you spend the money on research to find something new when you won’t know until after you’ve found it whether or not it can be reverse engineered?

[…] How patent monopolies work in reality So you want a patent, or patent monopoly, on this wrench. (Patents are usually referred to as exclusive rights). The first shock comes at the price of the lottery ticket. To just apply for a patent monopoly in Europe, the typical cost is 50,000 euros. The venture capitalists themselves, however, hate the patent system as a whole with all their guts and call it a cancer in the economy and say things like “I can’t understand why our government allows this shit to go on”. […]

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